Was 2017 The Year Of Peak Oil Demand?

From Gregory Brew: It’s possible that 2017 may go down as the year when the concept of peak oil demand went from speculation to potential reality, as companies and energy analysts began estimating when demand growth for oil would begin to taper off.

The debate over whether peak demand is coming has been fierce, but it’s possible that the inordinate focus on the potential plateau in global oil demand ignores more important, immediate concerns that will have a much bigger impact on prices.

While the predictions of when peak demand may come vary quite considerably, they mostly point to levelling demand in the developing world due to slowing growth, stable or declining demand in the industrial world due to the widespread adoption of electric vehicles, and the replacement of oil by natural gas or renewable energy. New demand will come from petrochemicals, driving the need for light end products and diminishing the need for heavier crudes, according to McKinsey & Company.

Electric and self-driving vehicles will be the key disruptors. EVs, which currently account for only 0.2 percent of all cars, will make up one-third of all new car sales by 2040 according toIHS Markit, increasing their overall share to 16 percent.

The IEA revised its demand prediction downwards this week by 100,000 bpd for both 2017 and 2018, to 1.5 million bpd and 1.3 million bpd respectively. The group, which has caught some flak for its incredibly optimistic estimates of U.S. shale production, also cautioned that higher non-OPEC production next year will keep prices from rising above $60. Prices slumped a bit this week on the back of weaker demand forecasts and reports of higher inventories in the U.S.

Peak demand has become an established idea, to the point that BP’s CEO Bob Dudley was able to quote an exact date. Asked when peak oil demand would arrive, he suggested June 2, 2042.

But is the case for peak oil overblown? Should the market be more concerned with short term factors, rather than the still distant prospect of slowing or declining demand?

OPEC doesn’t think peak demand will come before 2040, citing strong current demand and the continued economic growth in the developing world. Daniel Yergin, energy expert and vice president of IHS Markit, thinks it’s “funny to be talking about peak demand” when annual demand growth remains so strong, and when economic activity in the developed world, particularly North American and Western Europe, has recovered.

Jamie Webster of BCG’s Center for Energy Impact noted that oil demand in 2017 was particularly strong, rising 1.6 million bpd. Demand growth will likely continue to be strong for years before peaking, but Webster points to a much bigger short-term problem: the rising decline rate and the reduction in capex committed to new production.

Placing a hard figure on decline rates has been tricky, but the rule of thumb has been 3-6 percent a year. Offshore tends to decline faster than onshore, while shale declines faster than anything else.

The average decline rate has spiked in part due to the growing emphasis on shale production, where decline rates are high. According to one estimate, 2016 had the highest decline rate on record, and BCG assessed the decline rate for 2017 at 9 percent or 8.8 million bpd.

The Eagle Ford Region in Texas, according to the EIA, is adding new production, but its legacy oil production fell so far as to balance out the increase, leaving the field with zero net change between October and November.

This is potentially a much more important consideration than peak demand. Earlier this year the IEA ran alarm bells, warning that the fall in capex on developing new production (a result of the slump in oil prices) would lead to near-term shortages as decline rates accelerated. The group’s five-year forecast saw higher prices as spare production falls to a fourteen-year low in 2022.

Companies spent $450 billion on upstream in 2016–about 25 percent less than what they need to meet demand growth and make up for the decline rate.

A potential silver lining is the fact that new shale production can come online relatively quickly, making up for the higher decline rate. But shale, despite the IEA’s abundant optimism, can’t shoulder the burden on its own. While acknowledging that shale has over-performed and proven quite resilient amidst low prices, Webster points out that its growing importance to the supply balance will increase the risk of supply shortages in the near-term, impacting prices in more immediate ways than the distant, nebulous prospect of peak demand.

wth in the developing world. Daniel Yergin, energy expert and vice president of IHS Markit, thinks it’s “funny to be talking about peak demand” when annual demand growth remains so strong, and when economic activity in the developed world, particularly North American and Western Europe, has recovered.

2.4% economic growth in the US this year. That is recovered? WTF? Yergin is a dumbshit liar.

Does anyone else think that a 16% share of total autos will consist of EVs by 2040 to be a paltry and disappointing amount?

Makati1 on Tue, 21st Nov 2017 9:25 pm

Sissy, I think it will be a techie dream. 2040? If any personal vehicles exist, I would be surprised. They will likely be animal drawn carts if there are. 23 years is forever today. Tomorrow is unsure. The sun will come up, but…

rockman on Tue, 21st Nov 2017 10:21 pm

“Does anyone else think that a 16% share of total autos will consist of EVs by 2040 to be a paltry and disappointing amount?” How about just disappointing if the remaining 84% of the market is comprised of signifcantly more ICE’s on the road in 2040 then the the 1.2 billion on the road today. A higher % of EV’s on the road doesn’t gaurentee the transportation segment won’t be generating more GHG in 2040 then is being produced today. Especially when you consider a certain amount of the eletricity powering some of those EV’s will be generated by burning fossil fuels…just as many EV’s on the road today are.

And, of course, the 16% is just a made up number that can’t be proved.

dave thompson on Tue, 21st Nov 2017 10:40 pm

“Does anyone else think that a 16% share of total autos will consist of EVs by 2040 to be a paltry and disappointing amount?”
The only real observation today is, no matter the amount of EV transport, solar, wind turbines and what ever else is put into use, humans continue to burn FF at larger rates every year, so far.

I hope we can build out many EV’s before systematic demand that globalism is demonstrating now contracts. We are likely going to be struggling with discretionary driving in just a decade or less and EV’s might be an vital alternative in many locations. In fact a bad down turn could happen anytime but a decade of more of the same feels like a limit. I mean can we keep all “this” up like a circus juggler. Many of us see what the world is doing and scratch our heads. There is so much that is not rational.

We will need transport and electricity to survive in those TBTF centers of support for globalism if a bad contraction comes. There are places and people that are too important to lose. It is likely in a decade or two we are going to have less ICE vehicles not more. The reason is finite limits and systematic decline and our bumping up against them. Remember it is always the weak links that crash the party. You only have to get near a fire to get burned. We have many weaknesses and one of the biggest and weakest is the economy.

I am thinking a big effort is going to be made with EV’s and renewables. There is the potential if all goes right to give us a 30-40% overall penetration. This will ensure we have some cushion on the way down. I am saying 30-40% because once you get over that penetration number cost rise at a faster and faster pace. Storage, backup power, and grid upgrades are expensive. This alternative energy transition effort is a process that takes time. We are running out of time with growing economic growth that will support a rapidly expanding and prosperous future. Renewables and EV’s must have affluence and growth, period. Otherwise we will fall back on what is there now. You don’t build stuff when you are broke says common sense.

We have a stagnating and systematically unstable economy of repression, easing, and the moral hazard of debt management. Instead of real price discovery and the cleansing effects of recession we have central banks and governments extending and pretending bad debt that is real. Real is not fantasy last I checked. Unfunded liabilities are being made to look whole by tax money. Remember all it takes is a little tax money to keep paying out the Ponzi payments of pensions and all those social safety nets. Eventually it takes real resources to feed and house people in the real world. This is a Ponzi that will end. The game is also with our economic structures that are a house of cards of malinvestment. We are yield seeking instead of wise investing. This points to a future where we have an economic day of reckoning like the 08 crisis but this time there is no huge untapped reservoir of debt to dispense. There will need to be a long hard recession to cleanse the systematic inconsistencies or waste and poor decisions. It is unclear we will survive that kind of recession this time around. We may have shot our load boys.

This is the future of ICE and EV’s but also in a bigger sense oil and renewables. All these are some of the biggest capital cost items to our civilization and they are part of what is driving continued growth. Can you imagine the end of the auto industry and what that will do to many economies? Can you imagine consumerism slowing down? This is likely the future because nature is cyclical and this surely means the economy will have another down cycle. In fact it means that is our only economic choice ahead. We can delay it and discount it but we can’t wish it away. Will we survive another 08 type Minsky Moment?

“Yesterday we presented readers with one of the most pessimistic, if not outright apocalyptic, 2018 year previews, courtesy of BofA’s chief investment, Michael Hartnett who warned that in addition to the bursting of the bond bubble in the first half of the year, the stock market could see a 1987-like flash crash, potentially followed by a sharp spike in (violent) social conflict. However, in addition to his forecast, Hartnett also had one of the more informative, and descriptive, reviews of the year that was, or as he put it: 2017 was the perfect encapsulation of an 8-year QE-led bull market.”
“Here are his 15 bullet points that show why in 2017 we may have seen the biggest bubble ever (and why we can’t wait to see what 2018 reveals).”
1. Da Vinci’s “Salvator Mundi” sold for staggering record $450mn
2. Bitcoin soared 677% from $952 to $7890
3. BoJ and ECB were bull catalysts, buying $2.0tn of financial assets
4. Number of global interest rate cuts since Lehman hit: 702
5. Global debt rose to a record $226tn, record 324% of global GDP
6. US corporates issued record $1.75tn of bonds
7. Yield of European HY bonds fell below yield of US Treasuries
8. Argentina (8 debt defaults in past 200 years) issued 100-year bond
9. Global stock market cap jumped1 $15.5tn to $85.6tn, record 113% of GDP
10. S&P500 volatility sank to 50-year low; US Treasury volatility to 30-year low
11. Market cap of FAANG+BAT grew $1.5tn, more than entire German market cap
12. 7855 ETFs accounted for 70% of global daily equity volume
13. The first AI/robot-managed ETF was launched (it’s underperforming)
14. Big performance winners: ACWI, EM equities, China, Tech, European HY, euro
15. Big performance losers: US$, Russia, Telecoms, UST 2-year, Turkish lira

bobinget on Wed, 22nd Nov 2017 4:55 pm

IEA underestimated demand for last 7 years..
Climate, not truly factored.
This year we witnessed three hurricanes,
worst fires in West, warmest year, highest CO/2
on and on. Just mitigating future mess will be quite
energy, labor, financially, intensive.

Boat on Wed, 22nd Nov 2017 9:03 pm

16%? think 60%. If people start dying off in large numbers due to climate change the world will adjust fast. Plug in to the new society, support renewables to slow the die off.